Is Yelp a Sleeping Giant About to Arise?

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Written By Kris Enyinnaya

Yelp, Inc. (NYSE: YELP) operates as a platform for restaurant and local business reviews. Despite sharp market rallies across various sectors this year, Yelp has experienced a nearly 20% decline in market value. Investors have favored riskier and higher-growth stocks, steering away from potential value traps.

However, Yelp is pursuing several growth initiatives and maintains a respectable competitive moat, distinguishing it from typical value traps.

Short-Term Challenges and Long-Term Growth

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In the first quarter of 2023, Yelp faced macroeconomic headwinds, particularly in the restaurant sector, where ad revenue was roughly flat year-over-year. The restaurant industry continues to struggle with rising labor costs and a softer macroeconomic environment, limiting expansion optimism.

Despite these challenges, Yelp is expanding its growth in the Services sector, which is experiencing double-digit growth.

In April, Yelp introduced Yelp Assistant, an AI-powered tool that uses natural conversational language to connect users with home professionals for various tasks. This initiative is part of Yelp’s strategy to diversify its appeal beyond its traditional dominance in restaurant reviews.

Growth Initiatives and Market Position

Yelp is focusing on several key areas to drive growth:

  • Home Services Expansion: Yelp has seen growth in categories like Home Services, broadening its appeal and increasing its pool of advertisers.
  • Multi-Location Customers: Yelp is targeting large, multi-location national chains, moving away from a sole focus on local businesses and restaurants. This shift towards enterprise customers is part of a strategy to secure high-contribution recurring clients.
  • Sales Segmentation: Yelp’s sales teams are now more focused on enterprise customers, reducing the number of account executives targeting smaller businesses. This strategy has not impacted account growth, with paid advertiser accounts and average spend per account continuing to rise.
  • Margin Improvement and Profitability: Yelp has implemented measures to improve margins and profitability, including reducing its real estate footprint and allowing remote work. The company has also focused on cost control and increasing sales efficiency.
  • Share Buybacks: Yelp leverages its strong balance sheet and consistent cash flow to buy back its shares, enhancing earnings per share even during periods of slower top-line growth.

Q1 Financial Performance

In the first quarter, Yelp’s revenue grew by 7% year-over-year to $333.8 million, slightly missing Wall Street’s expectations of $334.5 million. Ad clicks increased by 8% year-over-year, maintaining optimistic traffic trends despite challenges.

The cost per click (CPC) reduced year-over-year due to a paid project acquisition initiative aimed at driving higher Request a Quote volumes. This initiative, although initially a headwind to revenue, is expected to improve advertiser retention over time.

Despite these growth investments, Yelp’s adjusted EBITDA margin increased to 19%, a two-point improvement from Q1 2023. Nominal adjusted EBITDA grew by 19% year-over-year to $64.5 million.


At current share prices near $37, Yelp has a market cap of $2.54 billion. After accounting for $420.7 million in cash on the company’s balance sheet, the enterprise value stands at $2.11 billion. Against the $320 million midpoint of the company’s adjusted EBITDA range for the year, Yelp trades at 6.6x EV/FY24 adjusted EBITDA.

Yelp is an Attractive Proposition

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Yelp, Inc. has implemented several strategic initiatives to drive growth and maintain its competitive position. The company is focusing on expanding its Home Services category, targeting large multi-location customers, and improving margins through cost control and efficiency measures.

Despite short-term challenges in the restaurant sector and reduced cost per click trends, Yelp’s valuation presents an attractive opportunity. The company continues to execute its strategy to grow and retain advertiser accounts, while maintaining a strong balance sheet and consistent cash flow.


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